Buying Sky: the Market for Transferable Development Rights

Home , 12 East 53rd Street, Lever House, Seagram Building

@FURMANCENTERNYU OCTOBER 2013 Transferable The Market for BUYING SKY: Development Rights in New York City Zoning Resolution permits, while the seller loses the right to otherwise ever use New York City’szoning code (known asthe “Zoning Resolution”) regulates landuse provides for limited an owner opportunities of land that is less than fully devel built subject to earlier, more-restrictive rules, zoning or the owner chose to develop other considerations applicable when the building was built. The Zoning Resolution Resolution Zoning other considerations applicable when the building was built. The on theirproperty. Some buildings are built below the applicable limit—because they development torights,” “TDRs,”or “air rights”) develop larger than the buildings oped to transfer her unused development rights toenables This other properties. in part by limitingthe square footagein part of the building thatlandowners candevelop the property lessintenselythe property thanthe zoning allows because of market conditions or those rightsonherown property. the recipients of those development rights (known at that point as “transferrable are constrained by other regulations such ashistoric rules, they preservation were POLICY BRIEF FURMAN NEW FOR REALESTATE&URBANPOLICY SCHOOL OFLAW•WAGNERPUBLICSERVIC YO RK UNIVERSIT CENTER Y E - 2 BUYING SKY: The Market for Transferable Development Rights in New York City FURMAN NEW FOR REALESTATE&URBANPOLICY SCHOOL OFLAW•WAGNERPUBLICSERVIC YO RK UNIVERSIT CENTER “FAR”) depends on the location of the 1. How do New York The Zoning Resolution specifies, for specifies, Resolution Zoning The tool forTDRs are an important zoning linked to thevalue ofTDRs. 1 Buildings larger than50,000square feet completed between valuable. Almost a third of the large would permit larger buildings through Programs Work?Programs City’s Development the wider useofTDRsandincentivethe wider the proposed EastMidtown rezoning that the Furman Center hascompiled. faces a wide or narrow street), the use Rights Transfer

Information about the market for TDRs is particularly relevant todayis particularly because (known asthe “Floor Area Ratio” or 2 TheFurman Center haspreviously shared much ofthese data 2007 and2012. located and, insome cases, whether it lot is it which in district thezoning (e.g., property documents, but is generally documents,butis property publicly available recorded inthecity’s market islargely opaque. Information rights acquired from other lots. below Central Park used development recently constructed inManhattan residential and commercial buildings of the city and can be very parts per square foot of lot area. ratio This ber of square feet of building area City using anew dataset of transactions betweenCitywide, and2011, 2003 each lot thecity, in num amaximum explore the TDR market in New York identify time-consuming to or difficult fordollars TDRs. However, the TDR developers paid more than a billion developers building inthe densest and interpret. Inthis Policy Brief we about most individual transfers is currently under City Council reviewcurrently underCity Council completed between and2011 2003 sions with thesions cityandother with stakeholders. in public events, and discus academic presentations andarticles, Y E

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Through a process known as a “zoning Zoning Lot Mergers to group together their properties and to would thebuilding which (e.g., put be feet of floor area. However, if this lot has facility, ormanufacturing), andwhether For example, alandowner a5,000 with in the same districtzoning (orzoning lot merger,” owners ofadjacentland have them treated asone lot for zoning limitedment very rights only in cases: has 2,500 square feet of unused floor residential building with 12,500 square residential, commercial, community Currently, Resolution theZoning allows districts permitting thesame uses permitting districts FARdential couldconstructa of2.5 or not the developer includes certain and same maximum FAR)and samemaximum canagree an owner to transfer unused develop able to transfer. area development shemay rights be an existing buildingwithonly10,000 a publicplazaor affordable housing). a bonus of higher permitted FAR (e.g., amenities or land uses that allow for square feet of floor area, the landowner square foot lot resi amaximum with - - 3 BUYING SKY: The Market for Transferable Development Rights in New York City FURMAN NEW FOR REALESTATE&URBANPOLICY SCHOOL OFLAW•WAGNERPUBLICSERVIC YO RK UNIVERSIT CENTER To help compensate owners of des the same block as their building site; types of transaction documents the city they must execute and record certain to theirbuildingsite (seeinset box). the grantor lot(s)and additionaldevel thegroup, in ties astheunusedFAR of to adjacent lots (similar to a zoning lot fer unused development rights not only from the city. However, because the Landowners can orchestrate this type if there is adevelopment opportunity in some circumstances, across an inter inability to capitalize on any unused ignated landmarks for the burden of lots inazoning lot merger must form a lot asaway mergers to transfer devel requires, but do not need any approval to transfer properties built unused purposes. effectively This allows under merger), but also across the street or, high-density zoning districts to trans ment, the Zoning Resolution allows offi old structures and forpreserving their Landmark Transfers development rights through redevelop erable negotiating leverage. development canhave rights consid developers to with unused properties owners of unused rights can only sell of transfer “as-of-right,” meaning that throughopment rights contiguous lots other landowners to enter into zoning one another out. Developers pay often opment on the recipient lot(s) cancel development rights to other proper and owners of lots needed to connect and interested purchaser ontheblock; able development con rights isvery can only buy unused rights located on group,contiguous themarket for avail cially designated landmarks inmid- and section. This type oftransfersection. This requires strained and idiosyncratic: developers Y E ------• “special purpose“special theZon in districts” To better tailor zoning to specific neigh zoning lotzoning the number of via mergers, turn, requires review public through the the City Planning Commission, which, in the building owner to enter into a bind to anya designated in property receiv these districts the Zoning Resolution from designated grantor sites orzones Procedure (“ULURP”). Even the with ing Resolution that each have their own ing agreement to maintain the land in particular haveparticular in hadactive TDRmar ing zone. Two special purpose districts borhoods, hascreated thecity several smallor non-existent. very rights isoften ble purchasers for alandmark’s unused mark fromand secure permit a special kets inrecentyears: expanded right to transfer compared to Special Purpose District TransfersSpecial Purpose District additional land use rules. Insome of allows development transfers rights city’s lengthycity’s Uniform LandUseReview fer unused development rights to In the Special Midtown District, ater Subdistrict (roughly between almost any other lot theThe in since 1998, been able to trans specified Broadway theaters have, ------4 BUYING SKY: The Market for Transferable Development Rights in New York City FURMAN NEW FOR REALESTATE&URBANPOLICY SCHOOL OFLAW•WAGNERPUBLICSERVIC YO RK UNIVERSIT CENTER • “listed-theater” program of the Spe Zoning Resolution also permits devel West program ChelseaDistrict arefreed fers, however, theseother in special from the strict adjacency requirements Because transfersBecause madethrough the purpose recent years. in districts pose districts established around the Station, and, more recently, the Hud GrandCentral StreetSouth Seaport, ers. There haveers. few been very trans opment rights transfers inspecialpur of zoning lot these TDRsare mergers, cial Midtown District and the Special son Yards Special District, among oth sometimes called “floating rights.” The way’s theater industry. Purchas to increase the allowable bulk on to transfer unused development trict, owners of land underneath to enforcing theater preservation to 57th Street). Transfers require In theSpecialWest Chelsea Dis Line have, beensince able 2005, 6th and 8th Avenues, and8th 6th from 40th receiving sites by limited amounts nues. Developers can use TDRs rights to receiving zones located ning Commission. right, and in some cases can use measures andpromoting Broad remain atheater, along withacash even more TDRs withadiscretion on receivingsites by up to 20 per theallowable canincrease ers bulk enants) that the granting site will as-of-right. along ornear10th and11th Ave and immediately west of theHigh authorization from the City Plan ary assurances (through restrictive cov cent through such transfers as-of- contribution to a fund dedicated Y E ------

feet ofunusedrightsto thetower site. which transferred 14,235apartments, square pre-war walk-up building with a storefront and Avenue (shown in the foreground), a five-story One of these grantor lots was 985Second zoning lot merger. from three lots withwhich itentered into a square72,000 ing feet ofdevelopment rights purchas by tower taller a build to able was developmentium East at 250 53rd Street The developer of condomin the residential Lot Mergerfor 250East53rdStreet Figure 1: look like? transfer rights development doesa What East 52nd Street 52nd East

Lots IncludedinZoning

985 2nd Ave 2nd 985

987 2nd Ave 2nd 987

989 2nd Ave 2nd 989

53rd Street 53rd

250 East 250 East 53rd Street 53rd East

2nd Avenue - - 5 BUYING SKY: The Market for Transferable Development Rights in New York City FURMAN NEW FOR REALESTATE&URBANPOLICY SCHOOL OFLAW•WAGNERPUBLICSERVIC YO RK UNIVERSIT CENTER To better themarket understand for We identified 421 development 4 Thetwo landmark program transfers we identified were from through zoninglot mergers. transfers usingthespeciallandmark ter searched thecity’srecorded prop transfers andthreeofthespecial 2. The Market for Development Rights Table 1: Sources: ACRIS, Furman Center documents analysisofrecorded property For several of the zoning lot merger ingly, althoughwe identified onlytwo program, purpose districttransfers. Interest program transfers and34special but we alsoidentifiedtwo landmark plished through zoninglot mergers, most recenttransfers were accom rights transactionsthatoccurred 610 Lexington Avenue, was approved by the cityin2008,but the over thisperiod.AsTable 1shows, occurred between 2003and2011. documentsfor transactionsthat erty development rights,theFurman Cen 3 We describe our search ingreater detail inthe Methodology our study period. among thelots transferring rights and Notes section attheend of thisbrief. parties didnot completeparties the transfer until 2012, takingitoutside Building (for the hotel/condominium tower at4005thAvenue). A third transfer, from the Seagram Buildingto adevelopment site at the University Club (for the proposed MoMa tower) andthe Tiffany Total Special purpose district Landmark program Zoning lot merger Y E 4

19 other landmarks were Number ofDevelopment RightsTransfers by Type, 2003-2011

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- - Between affiliates TDR activity likely increased further in TDR activitylikely increased further 2012 and2013. 2007, butfell backsharply thefollow in which wewhich have thepaceoftrans data), to tell us much about the market for affiliated an or party, same the that transactions betweentransactions unaffiliated fer activity had picked up slightly, and As of 2011 (the most recent year for fers climbed rapidly between 2003and Figure 2shows, the number of trans Development rights purchases are ing years as the overall market stum large projects. The level of transfer landowners, andthe remainder of our party, owned the grantor and recipient purpose district transfers, it appeared bled andthe GreatRecession took hold. have been “arm’s length” commercial How often have property owners owners haveHow often property transferred developmenttransferred rights? development hundred Three rights. often part of the site assembly pro part often along with the real estate market. As flows and ebbs accordingly activity analysis focuses onthisgroup. cess for developers to seeking build sixty one of the transfers appear to sites, so the transactions are unlikely 60 57 3 0 Arm's length 328 361 31 2 Total 385 421 34 2 - - - - - 6 BUYING SKY: The Market for Transferable Development Rights in New York City FURMAN NEW FOR REALESTATE&URBANPOLICY SCHOOL OFLAW•WAGNERPUBLICSERVIC YO RK UNIVERSIT CENTER Sources: ACRIS, Furman Center documents analysisofrecorded property Where have development rights 2003-2011 Table 2: for high density and have high levels Figure 2: Sources: ACRIS, Furman Center documents analysisofrecorded property Development rights transfers typically is only one way that the Zoning Reso lution limits buildingsize.Alldevelop ments, even if they use TDRs, must also transfers takentransfers place? of market demand. The maximum FAR areasthatarebothoccur onlyin zoned 10 20 30 40 50 60 70 80 90 0 20 Y E 03 Staten Island Manhattan Brooklyn Landmark orspecialpurpose districttransfer

Queens Number ofArm’sLengthDevelopment RightsTransfers by Borough, Bronx

Arm’s LengthDevelopment RightsTransfers, by Year (2003-2011) 20 04 20 Number Number 05 276 38 0 9 5 Zoning lot merger Zoning lot merger 20 06 Share Share 84% 12% - - 0% 3% 2% 20 07 that the Zoning Resolution defines for fit within the spatial “zoning envelope” limits and, indirectly, minimum parking yard,limits, street-wall andset-back requirements, maximum lot coverage each lot through tools such as height 20 Zoning lot mergertransfer Number Number 08 special purpose district 33 0 0 0 0 Landmark &special purpose district Landmark & 20 09 Share 100% Share

0% 0% 0% 0% 20 10 20 11 7 BUYING SKY: The Market for Transferable Development Rights in New York City FURMAN NEW FOR REALESTATE&URBANPOLICY SCHOOL OFLAW•WAGNERPUBLICSERVIC YO RK UNIVERSIT CENTER property documents, PLUTOproperty Center analysisofrecorded Sources: ACRIS, Furman tional FAR. Moreover, TDR transactions Figure 3: ing Resolution allows. lot exceeds theZon capacity thebasic limit the ability of lots to receive addi requirements. demand for new spaceona building the when sense financial make only of the city these various mechanisms 5 Owners ofdevelopment5 Owners sites acquiring TDRsthrough the to obtainandawaiver, along with the TDRtransfer, requires a special permit. from the “zoning envelope” constraints, but variances are difficult landmark transfer program canapplyfor variances orwaivers Airports andparks Airports Community Districts Zoning lot mergertransfers district transfers Landmark andspecialpurpose Y E

Location ofLots Transferring Development Rights,2003-2011 5 In lower density areas

- - took place there as well. Even within tively generous zoning envelope. Both fer programs are located inManhattan, ure 3 show, avast majority of zoning For these reasons, asTableand Fig 2 in Manhattan, withitshighrents and landmark transfers inour data were lot merger transfers have taken place all oftheother transfers ourdata in thespe Manhattan.Because also in cial purpose districts with active trans sales prices manyand, in areas, rela - - - - 8 BUYING SKY: The Market for Transferable Development Rights in New York City FURMAN NEW FOR REALESTATE&URBANPOLICY SCHOOL OFLAW•WAGNERPUBLICSERVIC YO RK UNIVERSIT CENTER 284 transactions transferring284 different 10 15 20 25 361 arm’s length transfers inour data through arm’s length transactions. The for percent 65 develop ofthecity’s of Transferred FloorArea(SF),2003-2011 Figure 4: Sources: ACRIS, Furman Center documents analysisofrecorded property Manhattan, thetransfers were heavily Figure 4 shows 4 Figure thepercentage ofthose (Midtown), which together accounted (Financial District), 3(Lower East Side/ least seven square million feet ofdevel ment rights transactions between 2003 recorded documentation for of the 284 How have large development Chinatown), 4(Clinton/Chelsea), and5 Citywide, landowners transferred at 6 For the others, the parties used general terms,6 For such as“all the others, the parties opment rights between 2003and 2011 and 2011. unused rights,”making it more difficult to discern the size ofthe concentrated inCommunity Districts 1 rights transfers been? rights transfers transfer. specifies the exact size of the transfer. 0% 5% % % % % Y E

Percentage ofAllArm’sLengthDevelopment RightsTransfers by Size 6 - -

Zoning lot merger transfers were typi zoning lot merger transfers, there was trict and landmark transfers. Within to 21,000square feet for special dis squarethan 5,000 feet andalmost70 fers, with a median floor area of just of area floor median a with fers, feet. Only five percent of the transfers under 13,000square feet, compared (including both landmark transfers in hattan and those in theotherhattan andthosein boroughs. between Man thosethatoccurredin no significant difference in typical size percent were square less than 20,000 or larger. our data) were 100,000 square feet of these individual TDR transactions area. Indeed, 20 percentarea. Indeed,20 were less amounts of development rights. Most cally smaller than other types of trans floor of amounts small conveyedonly - - - - 9 BUYING SKY: The Market for Transferable Development Rights in New York City FURMAN NEW FOR REALESTATE&URBANPOLICY SCHOOL OFLAW•WAGNERPUBLICSERVIC YO RK UNIVERSIT CENTER than 200,000 squarethan 200,000 feet ofdevelop the new tower residential Extell devel is through two, three, or even more sep transferred from alot the developer well (as transactions as other rights Although individual transfers were usu Transfers, by ManhattanCommunity District,2003-2011 Table 3: Sources: ACRIS, Furman Center documents analysisofrecorded property **Transactions withpriceandsquare footage information. *Community districtswithnodevelopment rightstransactionsareomitted. ment rights purchasedment rights through sep 12 projects aggregate rights acquired property documents.Theaverageproperty price How much have buyers paidfor Of the 361 arm’s length transactions in our data, 242 specified the square foot oping on West 57th Street uses more arate purchases. For example, “One57,” ally relatively small,many development amounts shown in the city’s recorded age of the transfer and had payment arate arm’slengthzoninglot merger controlled). development rights? Community District ofRecipientCommunity District Lot* East Harlem(MN11) Central Harlem(MN10) Upper EastSide(MN08) Upper West Side(MN07) Stuyvesant Town/Turtle Bay (MN06) Midtown (MN05) Clinton/Chelsea (MN04) Lower EastSide/Chinatown (MN03) Greenwich Village/Soho(MN02) Financial District(MN01) Y E

Average PriceperSquareFoot for Arm’sLengthDevelopment Rights ------7 We adjust allTDRsales prices using astandard consumer price was $181 per square foot (in2013 $40 inQueensandtheBronx. that apurchaser paid for development for development rightswas highestin ual transactions varied widely, from Manhattan, where developerswhere Manhattan, on paid less tothan $50 more per than $500 pared to Brooklyn $80in andless than rights conveyedthese in transactions dollars average $194 per square foot, com 8 Throughout unweighted thisanalysis we report averages, count and Notes for more information). mate the value of TDRsthatmay be traded inthe future, we use purpose isto describe the TDRmarket inrecent years, not to esti prices years paidindifferent Because our inconstant dollars. values to the appraise current value ofdevelopment rights. the amount ofsquare footage thatitconveyed. Unless otherwise makethat appraisers based upon changesin local real estate that index, rather thanthe adjustments to pasttransaction prices square foot. stated, in2013 allprices arereported (see Methodology dollars ing each development rightstransactionequally, regardless of index (see Methodology andNotes), allows which us to compare Per SquareFoot (2013 dollars) Average Price $223 $203 $189 $162 $162 $244 $187 $219 $51 $74 7 ), but prices paid in individ 8 Unsurprisingly the price

Transfers** Number of 45 13 15 10 81 27 17 2 4 2

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Turtle Bay, andontheUpper West Side. $100 $200 $300 $400 $500 $600 $700 $800 Within Manhattan, the average price 2003 and 2011,2003 substantially paid but varied a great deal between neighbor tral Park, and only slightlyless the in Sources: ACRIS, Furman Center documents analysisofrecorded property Development RightsTransfers by ManhattanCommunity District,2003-2011 Figure 5: However, even the average price atthe Financial District, on the Lower East less than that in transfers north ofless Cen than that intransfers north mendous variation. and 5 AsFigures that had districts nity transfers between paid more per squarethan $200 foot, hoods. As Table 3 shows, developers Side/Chinatown, inStuyvesant Town/ on average, in four of the 10 commu grantor site instead of the recipient site changes the average price 9 Five oftheSpecial Midtown Districttransfers were from districts. Recalculating Table 3based on the location ofthe per square foot inClinton/Chelsea andMidtown onlyslightly, by community district level district community concealstre theaters to development sites thatwere indifferent community less thanfour inboth. dollars Y E MN01

Range ofPricesperSquareFoot (2013 for Arm’sLength dollars) MN03 MN04 9 - - - - MN05 were priced atlessthan$100 or more $100per square foot, and seven per transfers were theseouter in ranges. the transfers were priced at lessthan town Clinton/Chelsea area,including than $300. foot (in 2013 14 dollars), percent of In Clinton/Chelsea, percent42 of the In Midtown, for example, wherethe Even in Stuyvesant Town/Turtle Bay (CD MN06), where the MN06), range was(CD nar and Midtown(CD MN04) MN05). (CD 6 show,6 TDRssold for a widerange of rower,percent 23 of the transactions wasrange thegreater in widest Mid theManhattancommunity in prices districts with high numbers oftrans numbers high with districts average price was $203per square actions between 2003 and 2011. The cent were priced at more than $300. MN06 MN07 Average MN08 - - - - 11 BUYING SKY: The Market for Transferable Development Rights in New York City FURMAN NEW FOR REALESTATE&URBANPOLICY SCHOOL OFLAW•WAGNERPUBLICSERVIC YO RK UNIVERSIT CENTER 2008. Althoughtheaverages for 2009 2007, before falling in slightly back 2013 steadilydollars rose, alongwith the development rightswillbe devoted. trict in which the grantor or recipient the endofourstudyperiod. to 2011 are based on smallnumbers the real estate market, fromto 2004 tion timing. As Figure 7shows, the aver Sources: ACRIS, Furman Center documents analysisofrecorded property Midtown Community Districtsby PriceperSquareFoot (2013 2003-2011 dollars), Figure 6: 20 30 40 50 10 ing include the size of transfers, the at rebound significant a but 2009 in lots were located or the uses to which legal mechanism by whichthe transfer barometer of market-wide trends, they Manhattan constant ment rights in neighborhoods may be due to transac Some of the variationwithin pricing in Other factors that could affect TDR pric occurred, and the type of zoning dis occurred, andthetypeofzoning of transactions, so are a less reliable age price per square foot for develop show asharp dip inaverage TDRprices 0% % % % % % Y E Clin

to Percentage ofArm’sLengthDevelopment RightsTransfers inGreater n/ Ch el se a $0 (M N0 -9 9 4) $1 00 -1 Mi - - - - - 99 dt ow n (M 10,000 square feet) and large (10,000 2011, smaller transfers commanded 2009 to 2011. In2008,2009,and very fewvery transfers of either type from there were more transactions, the aver 2010.true in years, Inearlier when town area (including Clinton/Chel foot, on average, butthisdidnot hold for thegreater in transactions Mid fers Any sizes. ofdifferent role trans MN06)) betweenMN06)) and 2011. 2005 No Figure 8shows the average price per square foot for small(less than parison can reveal, or is obscured by be more complex than this simple com other factors. age priceswere similar for very trans and Stuyvesant Town/Turtle Bay (CD action size plays toprices appears in clear pattern isevident, and there were significantly higher prices per square per prices higher significantly sea Midtown(CD MN04), (CD MN05), square feet and more) transfers by year $2 N0 00 5) -2 99 $3 00 + St Tu uyve rt le Bay(MN06) sa nt T ow n/ ------12 BUYING SKY: The Market for Transferable Development Rights in New York City FURMAN NEW FOR REALESTATE&URBANPOLICY SCHOOL OFLAW•WAGNERPUBLICSERVIC YO RK UNIVERSIT CENTER TDRs were floating rights or transferred 2006, the average price per square year, and none in 2010).and In2005 there were only small numbers of float throughlot azoning merger (although the special district programs district the special to have com transfers rights floating few the tions was higher. Inmore recent years, for both groups. In 2007, the average foot for the two types of transfers in Development RightsTransfers inManhattanby Year, 2003-2011 Figure 7: S *Based onfewer than10 transactions. Even if there is no clear connection ing rightstransfers ineach individual not appear to be an obvious relation might expect transfers made through between priceandtransfer type,we per square foot. manded a much higher average price forprice lot zoning transac merger Similarly, shows, 9 asFigure theredoes greater Midtown was roughly thesame ship between price and whether the $ $ $ $ ources: ACRIS, Furman Center documents analysis ofrecorded property $ 25 20 15 10 50 0 0 0 0 Y E

Average PriceperSquareFoot (2013 ofArm’sLength dollars)

- - - - Town/Turtle Bay2008, in MN06)) (CD town area (Clinton/Chelsea (CD MN04), tion in pricing even among these float tiate with multiple possible purchasers. tiating azoning lot merger, who are that the market for TDRs canbe more the looser transfer restrictions mean the same neighborhood and because for example, thatofthenine special forced to deal the with few lots that Midtownand StuyvesantMN05), (CD However, we find a fair amount of varia ing rights transfers. rights ing 10 Figure shows, ing lot because they mergers, occur in less variation intheir prices than zon ble TDR sellers, and sellers cannego andsellers ble TDRsellers, receiving zones typically can,inthe robust. nego Incontrast to parties district transfersdistrict thegreater in Mid ory, negotiate withawider set of eligi own sites inspecial purpose district are adjacent to developers theirs, who ------13 BUYING SKY: The Market for Transferable Development Rights in New York City FURMAN NEW FOR REALESTATE&URBANPOLICY SCHOOL OFLAW•WAGNERPUBLICSERVIC YO RK UNIVERSIT CENTER West Chelsearanged District in 2008 2013 Moreover, dollars). both ofthose 10 Ingeneral, except by specialpermit or variance, TDRscannot vary by the district which the zoning in vary $1 $1 $2 $2 $3 $3 were priced above $400. Specifically, $400. above priced were transfers madethrough theSpecial the landmark program or pur a special ferring rights between different types from $248 to square per $435 foot (in four were below priced andthree $300 Development RightsTransfers inManhattanby Year, 2003-2011 Figure 8: Sources: ACRIS, Furman Center documents analysisofrecorded property Finally, develop additional because ment rights might be more valuable to pose districts, competition is limited pose district program were located in ment sites that acquired TDRs through receiving site falls. of districts, the price of TDRsmight and thereers are restrictions on trans or themarket isopaque. developer for thesame project, sug extremes were purchases by thesame gesting that even inthe special pur example, additional FAR withinacommercial district (whichallows district types, there may be systematic price differences. For a commercial district(which zoning maximum FAR and permitted uses. However, even withinzoning some types of development than oth both commercial and residential uses) may have different value be transferred from one zoning districtto another withdiffering for office projects projects. than for condo or apartment $ 50 00 50 00 50 00 50 Y E 20 05

Average PriceperSquareFoot (2013 ofArm’sLength dollars) 10 20 Allofthe develop 06 Le ss t ha 20 n 07 10 ,000 ------s f 20 10, 08 was significantly higher than the the aver than higher significantly was yet been developed), it’snot clear how transfers, project therecipient hasnot type that used the TDRs(and for many than commercial zones. Because our tricts ($129,in2013 Within dollars). ($201, zones turing 2013 in dollars) the average price for arm’s lengthzon tricts, but 17 percent occurred within trict (which permits manufacturing or fers com inManhattanalsooccurred MN07 and MN08 ),the average price ing theUppering East and West (CDs Sides ing lot merger transfers between 2003 Inthegreateridential. Midtown area, much of this price difference is due to residential zoning districts, which only mercial or manufacturing zoning dis permits commercial or residential data do not include theactual building was zones residential in of TDRs higher other neighborhoods, however, includ of transfers in residential zoning dis development) or a manufacturing dis age price forage price themuch smallernumber and 2011commercialin or manufac allow development that isprimarily res lotarm’s lengthzoning mergertrans commercial development). Most of the 000 s f an 20 d 09 mo re 20 10 20 11 ------14 BUYING SKY: The Market for Transferable Development Rights in New York City FURMAN NEW FOR REALESTATE&URBANPOLICY SCHOOL OFLAW•WAGNERPUBLICSERVIC YO RK UNIVERSIT CENTER TDR prices shift on averageTDR prices shift over time, The above calculations suggest that $100 $150 $200 $250 $300 $350 ter iscurrently analyzing the data infur betweentrends, andthatthey vary tricts within these neighborhoods, or the value of rights to different kinds of ther detail to better isolate the effects fer mechanism, and the type of zoning understand someofthecontext-speunderstand Transfers inManhattanCDs4-6,by Transfer Type andYear Figure 9: Sources: ACRIS, Furman Center documents analysisofrecorded property *No listed theater orSpecialWest ChelseaDistricttransfers were completed in2009. idential andcommercialidential dis zoning is developing, and where on a block a located are less clear. The Furman Cen ofoveralllikely realestate aspart value neighborhoods, but the effects of the res of locations specific the projects, block, thetypeofprojectblock, thepurchaser possible TDR buyers on a and sellers development site islocated) that might factors,of theseindividual andto better site thereceiving which in district is other factors. as well as others that are more diffi more are that others as well as also affect TDR prices. Thesefactors, cult to capture(for example, thequality of number the (including factors cific size of the transfer,the of size trans specific the $50 Y E 2005

Average PriceperSquareFoot (2013 for Development dollars) Rights Listed theater andSpecialWest ChelseaDistrict 2006 2007 ------2008 1 2 3 4 5 6 7 8 recorded property documents recorded property Sources: ACRIS, Furman Center analysisof Foot (2013 2008 dollars), by Transfer Type andPriceperSquare Greater Midtown CommunityDistricts Development RightsTransfers in Figure 10: - $0-199$ Zoning lot merger Special West Chelsea District Listed theater and Zoning lot merger 2009

Number ofArm’sLength 200-299 2010* $300-400 $400+ 2011 15 BUYING SKY: The Market for Transferable Development Rights in New York City FURMAN NEW FOR REALESTATE&URBANPOLICY SCHOOL OFLAW•WAGNERPUBLICSERVIC YO RK UNIVERSIT CENTER The evidence presented above about likelyTDRs) explain some of the wide 2008 (while approximately 19 other variation inprices we even observe worth. In general,greater transparency worth. documents forwhen submitting when adding recorded instruments to within years and within neighborhoods. which requireswhich just is permit, aspecial 3. Policy transactions (including square footage) the market for development has rights too to cumbersome beofmucha that the landmark transfer program, transfer program between and 2003 transferred through TDRs the landmark ACRIS, or require parties toACRIS, provide or require parties uniformly apply document type codes Implications First, given the difficulty of identifying of difficulty giventhe First, increases increases the efficiency of a market by in their TDRs if a zoning lottheira zoning in TDRs if merger is landmarks used zoning lot mergers reducing differences in the information rights areused,andhow muchthey are and othersplanners, how development owners, boards, community property recording.would This make clearer to more explicit information about TDR more transparent. For example, the execute typically parties to transfer benefit. Anecdotally, many landmark Anecdotally, many benefit. Second, thefactSecond, thatourdataset City’s Department of Finance could more of Finance could more City’s Department owners find that there is no interest no is there that find owners suggests thesameperiod) during development should thecity rights, of views from the buildings usingthe available to thepotential buyers and thedocumentsthatand decoding a number of implications for city policy. consider ways to make the TDRmarket shows thatonlytwo properties sellers. Y E

The city has relied onsuchprograms hasrelied city The West HudsonYards, district, Chelsea value of unused development rights without the certainty ofapproval),without the certainty nor for various development the goalsin Midtown rezoning currently being have findings immediately,our Most Finally, our data caninform the design of Furman Center currentlyresearching is implications for theproposed East waysin other policy goals that further landmark transfer program (especially not possible, because developers do new flexiblezoning programs, including program that could help make it more possible changes to the landmark public opposition to their project. The permit procedure required for the resources neededto usethespecial not want to spend the time andother Special Midtown District, the Special expanded TDR transfer opportunities. effective for landmarks and unlock the do they want to incurthe risk that the and other parts ofthecity.and other parts as well. special permit procedure permit special leadto will 16 BUYING SKY: The Market for Transferable Development Rights in New York City FURMAN NEW FOR REALESTATE&URBANPOLICY SCHOOL OFLAW•WAGNERPUBLICSERVIC YO RK UNIVERSIT CENTER 12 Certain other development12 Certain sites not meeting the location 11 More information about the proposed EastMidtown Rezoning to useseveral new to mechanisms build upon thelocationofsite): permitted (either 15 or 12,depending sizeand location criteria meet certain proposed would rezoning allow the owners of sites inthe affected area that Grand Central Subdistrict of the SpecialMidtown District),but above the maximum FAR otherwise and size criteria for the above provisions would also be able to purchase alimited amount of development rightsfrom certain considered by City Council. would not beeligible for the FAR bonus from DIF contributions. http://www.nyc.gov/html/dcp/html/east_midtown/index.shtml. is available ofCityPlanning’swebsite, at atthe Department landmarks (anexpansion of existing transfer rightsinthe current would beable to acquire another which would be used to finance the area’s pedestrian or transit transfers would not require a special upon the lot’s location) by making First, ownersFirst, of lots meeting infrastructure. Unlikeinfrastructure. current increase inpermitted FAR of improvements to the area’s transit location) by making a contribution to landmark transfer rules, these making certain improvementsmaking certain to rights from landmarks located within purchasing unuseddevelopment between 1.2 (dependingand 6.6 permitted FAR onthelot’s (depending permit review. Second, for certain sites,Second, for once certain a designated area, or, in some cases, additional contributions to the DIF, a contribution to the DIF, the owner permittedadditional FAR by making a landowner this has obtained and pedestriannetworks. Improvementa “District Fund” (DIF), secure between 1.2 and 3 additional to able be would criteria specified Y E 12 11 The The rezoning would rezoning The require that Terminal, Church, Bartholomew’s St. 13 The final environmental impact statement is available at will raise to fund area improvements, the DIFfor theset amount, contribution GrandCentralthe plan,including the proposed rezoning planissetting the that these mechanisms could together for unused development rights owned feet of net new office, retail and hotel for theproposed estimated rezoning impact statement prepared thecity least 80 percent office, retail, or other more than 20percent residential or hotel formechanisms FAR increased beat by the landmarks allowed to sellunder but willalso likely shape the market bonus FAR. This amount will not only must make to the DIF in order to receive result in as much as 4 millionsquare Central Synagogue, Lever House, One ofthethorny challengesofcrafting of securing development rights from developers willalways have the option determine how muchmoney theDIF a special permit. The environmental any development that uses these and St.Patrick’s Cathedral. Because amount of the contribution developers space, unlessthedeveloper obtains commercial space, and no supporting space intheaffected area. http://www.nyc.gov/html/dcp/html/env_review/east_midtown. shtml. would be able to secure athird to 2.4 or 6 (dependingon the lot’s Finally, sites owners ofcertain increase in permitted in increase FAR ofup location) through adiscretionary particularly particularly significant public benefit. a offer finds city the that buildings special permit process for “superior” 13 17 BUYING SKY: The Market for Transferable Development Rights in New York City FURMAN NEW FOR REALESTATE&URBANPOLICY SCHOOL OFLAW•WAGNERPUBLICSERVIC YO RK UNIVERSIT CENTER “Midtown Rent” Asking and“Manhattan The proposed sets rezoning theDIF 14 Thevaluation studies, prepared by Landauer Valuation & would automatically adjustannually years. For mixed-use projects, the DIF the costofinitialFAR increases. the DIF contribution rate isnot onlya they arepermitted to acquire so TDRs, the DIFwould between raise $605 for residential space, which are the foot for commercial space, and $360 unable to sell their rights for a higher FAR the developer would receive DIF contribution at the fixed rate before Budget Office, the city estimates that estimates city the Office, Budget in exchange for the contribution, Advisory, areavailable athttp://www.nyc.gov/html/dcp/pdf/ be based on a weighted average of the new appraisals every three to five recalibrate the rates by commissioning published by the Office of Management based on year-to-year changes to the atsubstantially lowerrights prices, Further,price. even landmark if owners rates. According to the Independent Condo Average PricePer Square Foot” over the next years20 withthese DIF andland TDRtransactions on prior developers must first make a minimum owners of the landmarks should be east_midtown/market_study_report.pdf andhttp://www.nyc.gov/ and Budget, and the city would according to analysespreparedfor the average expected values of the bonus are willing to sell unused development and $750 million (in current dollars) currentdollars) (in million and $750 pdf?635152225538900000. contribution rate per square foot would city by experienced based appraisers contribution rateper at square$250 for floor a but prices, TDR for ceiling commercial and residential contribution commercial contribution andresidential sales. html/dcp/pdf/east_midtown/residential_dib_appraisal_report. 14 Y E Beginning in 2014, these rates TDR transactions ingreater Midtown 1.1413219#ixzz2hl7wXm3h. 16 Bloomberg, M.R.(2013, July 31). The shot inthe arm 15 New York CityIndependent Budget Office (2013, September). variation, even withinneighborhoods, would advance funding to finance some which does not appear to be easily years. The contribution the proposed to the DIF inexchange for commercial the marketrecent haspriced TDRs in the DIF density bonus or through for “floating rights,” whichsome have for TDRs in recent years conceal wide factors inorder to provide anaccurate Bloomberg has indicated that the city DIF bonus rights. Some of this variation FAR thatFAR whenandif becomes in the affected area. Instead, our (some as much as 10 years old) may bonus FAR isroughly inline with the rezoning requires developers to make research describes, historically, how permitted transfers from landmarks proposal would make available through rights thatthe East Midtown rezoning may be due to the opacity of the market, market shows, the average sales prices ofthevalueprediction ofthe bonus need to be adjusted, however, for between and2011. 2003 Thoseprices Our research does not appraise the Crucially, asour overview of theTDR observed variation evenobserved among prices explained by market trends. We area improvements up-front available. average 2013price (in for dollars) all current value of the development contribution rates Is theCityMakingWay for More Office Space ThanNeeded Over East Midtown needs. The DailyNews. Retrieved from http:// www.nydailynews.com/opinion/shot-arm-east-midtown-article- the Next 30Years? Retrieved from http://www.ibo.nyc.ny.us/ suggested are the most analogous to subsequent market trends and other iboreports/2013midtowneast.pdf. 15 (although Mayor 16 ). 18 BUYING SKY: The Market for Transferable Development Rights in New York City FURMAN NEW FOR REALESTATE&URBANPOLICY SCHOOL OFLAW•WAGNERPUBLICSERVIC YO RK UNIVERSIT CENTER The city’s stated city’s The to is goal set a DIF 18 Some criticshave argued thatsetting the DIFcontribution 17 New York ofCityPlanning(accessed 2013, CityDepartment vary inanarea aslarge asthe proposed vary value of extra density varies from site to would diminish the DIF’scapacity to fund the value ofthebonusFAR for some the rezoned area. This inflexibility may Alternatives to a uniform, inflexible uniform, a to Alternatives factors. arelikely Justaslandprices to DIF contribution is higher thansome higher is DIF contribution DIF, ratesin and predictability has East Midtown area, the rezoning value if the DIF contribution is loweris the DIF contribution if than impede the thegoal ofencouraging buildings in the area. On the other hand, thearea.Onother in buildings hand, have unintended consequences for market value of the bonus FAR to many many advantages. variation The we thearea.” in rights market for commercial development likelybut very alsobecausethe is it development sites, the uniform rate development sites can bear, it could development inEast Midtown. Ifthe of the individualdevelopment sites in one rate is unlikely to reflect the actual however,observe, thatany suggests of development rights may widely vary October 14). EastMidtown Proposal: The DistrictImprovement over-midtown-east-air-rights/. city or landmark owners because itisset too low. See The Real content/uploads/2013/08/Position-statement-8-19-19-FNL. area infrastructureimprovements. a uniform rate for contributions to the setting to efficiencies administrative as well. pdf. Other criticshave the argued thatthe DIFrate shortchanges rate based onmarket value amounts to anunconstitutional midtown/east_midtown3.shtml. construction of large, new commercial ratecontribution that“reflectsthe Midtown Eastairrights.Retrieved from http://therealdeal.com/ Deal (2013, August 13). Grand Central landlord, cityclashover Rezoning Proposal. Retrieved from http://cityclubny.org/wp- of the CityClub of NewReport York EastMidtown Concerning Fund. Retrieved from http://www.nyc.gov/html/dcp/html/east_ site, based on several context-specific blog/2013/08/13/city-clashes-with-pensons-argent-ventures- sale of zoning. TheCityClub ofNew York (2013, August 19). Y E 17 Therearelikely 18

The private market for TDRswould The important role that TDRs haveThe important to better reflect the market value of value market the reflect better to to secure that funding and distribute ways efficient most and fairest the for the city to develop the best As density bonuses and TDRs are used for reflecting the market value market the reflecting for used FAR developers of eligible sites could infrastructure and other investments andused discussed increasingly likely track auction prices inorder to market conditions, and over time. bonus FAR to specific sites,in particular but also allow the DIFcontributions themechanisms government has many questions the advantages about rezoning, along withthe Hudson Yards had inthe proposed EastMidtown more robust public discussion about for time make a anopportune this needed to maintain neighborhood rights accurately. Further, the new mechanisms for valuing development needed infrastructure improvements, purchase asTDRsfrom landmarks of regulated assetsother in contexts, of expanded TDR transfer opportunities. of expanded TDRtransfer opportunities. auction schemes might allow for the ownedand publicly telecommunication and West raises Chelsearezonings, additional permitted density, and imperative is it urbandesign, and shape toas mechanisms helpfinance currently proposed, any additional compete with the DIF bonus if, as is contribution rate could be based on quality growth whileaccommodating challenges the city faces in funding the compensate constrained land owners, contributions to theDIF. could instead through beobtained same basic density bonus framework, spectrum. For example, various such as the pricing of oil and gas rights specifically about the possible roles possible the about specifically 19 BUYING SKY: The Market for Transferable Development Rights in New York City FURMAN NEW FOR REALESTATE&URBANPOLICY SCHOOL OFLAW•WAGNERPUBLICSERVIC YO RK UNIVERSIT CENTER “development rights,”“certificate,” These includedthedocumenttypes TDR-related documentswe identified. We compiled ourdataset by system We also searched ACRIS more broadly 2011 for documenttypesthatourre when submitted for recording. We 4. Methodology the entireperiodfrom 2003through of deadlines and context specific the the improvements needed to support transfer unused development rights Resolutionthe Zoning to aseligible that ourresearch suggested were for each “listed theater” identified by identified theater” “listed each for for transfer recorded documentation ACRIS allows to users search by 30- financing and flexibility providingfor RIS) andreviewing theterms ofthe ofFinance’sAutomatedDepartment involved. to other lotsinstruments pertaining identified possiblezoninglot merg and Notes likelybe more will productive outside ment types,” which the Department ment types,”whichtheDepartment documentsusingthe property new development. That discussion bonuses versus other mechanisms ment types,including“agreement” City Register Information System (AC months. thecoming in Commission ers, weers, thensearched other docu ed withdevelopment rightstransfers. of Financeassignsto documents day date rangesfor specific“docu and “zoninglot description.” Aswe atically searching thecity’srecorded proposed and rezoning, a particular TDRs anddensity ofusing and risks and “sundry agreement”for transferand “sundry search showed have beenassociat searched date rangesencompassing should be a priority for the City Planning Y E

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Through our search method, we transfers. Of these, 61 appeared to to whenthey theclosing went into severalto by theparties months prior the payment made at or near closing ACRIS all landmarked lots that news For alltypesoftransfer instruments, the by defined Transfer Corridor Line identified 421identified development rights (reported for(reported transfer taxpurposes), may not accurately arrange all prices many cases, the price was likely agreed Special West Chelsea District over our Similarly, we searched for transfer documents are dated. However, in our price information is from the “doc development rightsinrecentyears. documentation for every lot theHigh in generally at the time the transaction amount” fieldin ACRIS.This represents of the Special Midtownas part District. chronologically. contract, so our analysisof time trends coverage suggested hadtransferred study period. Finally,study period. we searched in 20 BUYING SKY: The Market for Transferable Development Rights in New York City FURMAN NEW FOR REALESTATE&URBANPOLICY SCHOOL OFLAW•WAGNERPUBLICSERVIC YO RK UNIVERSIT CENTER furmancenter.org “all unused.” Another transactions 42 About theFurmanCenterforRealEstate andUrbanPolicy The Furman Center is the leading academic research center in New York City devoted The Furman Center for Real Estate and Urban Policy isa jointcenter ofthe New York the overall purchase price. We didnot transfers in our data that have both the instrument we reviewed or any transfers, 77 notdid the specify amount for them inour price per square foot for easements and do not account from their projects, but the additional foot estimates 242 ontheremaining ACRIS provided no“docamount”for findings. groupgenerosity for ofourTDRadvisory reviewing ourmethodology andearly Center research assistantswhohelpedcompile andverify ourdataset andthe We gratefully acknowledge thehard work ofmany currentandformer Furman Acknowledgements In some cases, TDR purchasers may instead generallanguage,like using review the transfer documentation have separately bargained for a light price andsquare footage terms. related instrument. We base our year not were and affiliates between be University School of Law and the Robert F. School ofLawUniversity and theRobert Wagner Graduate School ofPublicService. of square feet thatwere transferred, and air easement to protect the views and neighborhood price per square analyzed further. Ofthe remaining 361 calculations. in included cost oftheeasementis on theFurman Center canbefound atwww.furmancenter.org and@FurmanCenterNYU. specified the size of the transfer, but the of size the specified dedicated to providing objective and empirical informationacademic More research. to estate, real oflanduse, aspects policy public the development, andhousing andis Y E To district thetypeofzoning identify York of City Planning. City Department This briefhasbeenpreparedby acenter affili We adjust all prices to 2013 (first half) transaction, we use the first zoning first the use we transaction, Wagner Graduate School ofPublicService. All Urban allitems, Consumers, not NY-NJ-CT-PA area. New Island, Jersey-Long Northern in the Primary Land Use Taxin thePrimary Lot Output (PLUTO) data set produced by the New views (ifany) ofNYU, NYUSchool ofLaw, orthe Statistics Consumer Price Index - district variable for each recipient lot of each receivinglot involved inaTDR ofLabor theBureau using dollars does not purport todoes not purport presenttheinstitutional ated withNew York University School ofLaw and Wagner Graduate School ofPublicService, seasonally adjusted, for the New York- - 19