AIR RIGHTS

“It’s not that I’m so smart,
it’s just that I stay with problems longer.”

Air Rights, aka Transfer Development Rights or “TDRs”, refers to the amount of development in square feet that can still be built or transferred based on a lot's zoning. The air rights of “underbuilt” lots can be very valuable to a neighboring development site to allow for a bigger building than the zoning for the development site would allow.

The Need for an Advisor

The ability to acquire air rights is a combination of a three-dimensional chess game. There is a need to have a full understanding of the Zoning Resolution, which can limit the height of a proposed development and limit the receiver site's absorption of TDRs. Also, having a depth of knowledge, as to what the market conditions are and how the additional NYC Off-Site Inclusionary Housing bonus can affect the valuation of zoning lot merger TDRs, is extremely important. Other types of third-party professionals can only offer limited insight. Due to the volume of transactions that TRIZ Advisory is involved in, we have a full understanding of market pricing given different considerations. We can use this information to add value to a client's transaction.

In addition to working directly with owners and developers, TRIZ Advisory is often brought in by both lawyers and appraisers to provide insights and advice on structuring TDRs for clients. TRIZ Advisory’s knowledge of pending transactions and involvement in the day-to-day sale and acquisition of TDRs is critical to the appropriate valuing and successful closing of a transaction.

Air Rights - Mechanisms

Air rights includes transferable development rights (TDRs) from:

(i) a zoning lot merger;
(ii) a special district or subdistrict;
(iii) a landmark transfer special permit; and
(iv) off-site inclusionary housing (OSIH).

A downloadable Reference Guide provides key terms, abbreviations, and acronyms related to air rights.

Zoning Lot Merger TDRs

TDRs from a zoning lot merger were allowed in NYC prior to 1961, but a zoning lot merger was not codified until the NYC 1961 Zoning Resolution. The first NYC zoning lot development agreement was executed on November 4, 1957. The agreement (recorded Con 5019 Page 491) was for 2 adjacent properties at Rockefeller Center. The agreement transferred density by the “tower privilege exception” of the then NYC Zoning Resolution’s § 9(d) to the “basic height and bulk limitations” of the Zoning Resolution’s § 8(g). This resulted in transferring density from 40 Rockefeller Plaza to 1260 6th Avenue.

The zoning lot merger was codified in the 1961 Zoning Resolution (effective December 15, 1961).

The zoning lot merger transfer is as-of-right by the NYC Zoning Resolution's provision 12-10, titled Definition, under the definition of #zoning lot#. The generating and receiving properties need to have 10 feet of contiguous property line. The NYC Zoning Resolution uses the syntax #term# to specifically reference a term that is defined by the NYC Zoning Resolution. The NYC Zoning Resolution states a #zoning lot# is:

... a tract of land, either unsubdivided or consisting of two or more lots of record
contiguous for a minimum of 10 linear feet, located within a single #block# ...

Special District TDRs

Special district TDRs are transferred as-of-right under a certification permit issued by the NYC Department of Buildings ("DOB"). Special district, or subdistrict, TDRs allow a donor property's TDRs to be transferred to an alternative receiver property located within a defined boundary of the special district. If a special district transfer meets certain prescribed criteria, the DOB can issue a certification allowing the special district TDR transfer. Current special district TDRs include:

(i) Midtown Theater Subdistrict;
(ii) Special West Chelsea District, aka the High Line District;
(iii) South Street Seaport Subdistrict;
(iv) Grand Central Subdistrict: and
(v) East Midtown Subdistrict.

Special Permit TDRs

Special permit TDRs are transferred under a discretionary permit issued by the NYC City Planning Commission. For example, the landmark site transfer is a discretionary permit provided by the NYC Zoning Resolution provision 74-79, titled Transfer of Development Rights from Landmark Sites. The landmark site transfer allows for the transfer of TDRs across a street, where the amount of TDRs is subject to certain restrictions.

However, this procedure is rarely used since the process requires a Uniform Land Use Review Procedure (ULURP). A ULURP is time consuming and costly. Below is an overview of Landmark transaction up until 2015 from the report, A Survey of Transferable Development Rights Mechanisms in New York City, from NYC Planning.

Off-Site Inclusionary Housing

Off-site inclusionary housing (OSIH) certificates are generated under the NYC Zoning Resolution provision 23-90, titled Inclusionary Housing. OSIH can be transferred as-of-right to a receiver property once the generating site's OSIH certificates have been approved by NYC's Housing Preservation and Development (HPD).

OSIH can be sold to a qualified receiver property anywhere within the same Community Board as the generating property. Alternatively, OSIH can be sold across Community Board boundaries if the generating and the receiving properties are within a 0.5 mile radius of each other. A qualified receiver property needs to either have a R10 equivalent zoning or be within a specific Inclusionary Housing designated area.

Existing OSIH Certificates

Existing OSIH certificates have already been approved by HDP and can be used today. Existing OSIH sell at a premium to to-be-built OSIH certificates.

To-Be-Built OSIH Certificates

To-be-built OSIH certificates are certificates that will be generated in the future, so the vendor and the vendee enter into a forward contract for the delivery of these future certificates. Given the planning and construction time delay for a development site, which would be a receiver for OSIH certificates, buying to-be-built OSIH versus existing OSIH can be better for the purchaser. This is because the purchaser does not need to outlay 100% of the OSIH purchase price today for a project that will not be receiving a certificate of occupancy (a “CO”) and utilizing the OSIH for another 24-30 months.

However, the downside to to-be-built OSIH certificates, from the purchaser's perspective, is the purchaser must be comfortable in the generating site delivering the agreed to OSIH square footage amount and in the timeline expected. As such, to-be-built OSIH certificates carry an additional level of project risk. If the generating site has issues in getting DCP sign off, then the purchaser will have issues receiving a CO for their larger square footage building, which is predicated on receiving the OSIH. TRIZ Advisory works with both OSIH purchasers and sellers, so purchasers can understand the level of risk for a given OSIH generating site. As such, a purchaser can gauge pricing differences in comparing different to-be-built projects against one another and against existing OSIH options (for situations where a purchaser has alternative OSIH options).

One example, of the existing OSIH certificates versus the to-be-built OSIH certificates decision, was a foreign consulate decided to pay a premium to purchase the existing OSIH certificates. This insurance premium cost the foreign consulate an additional $3.0 million, but it removed the risk of the future generation of the OSIH certificates.