Broker Robert Shapiro, president of Center City Real Estate, assembled parcels for Harry Macklowe’s Drake Hotel site, Vornado Realty Trust’s development in Harlem and the Crowne Plaza Hotel in Times Square. He negotiates the buying and selling of air rights, which allow developers to build larger than the site would otherwise permit, and other legislative rights such as 421a certificates that provide tax benefits. In 1986, the Real Estate Board of New York awarded him for the most ingenious deal of the year for the assemblage of the Crowne Plaza in Times Square. The Real Deal asked Shapiro how the weak economy, which has halted both the Macklowe and Vornado projects, has altered the market for air rights.
Are you seeing more institutional buyers actively pursuing land and development rights despite the recession? For example, in December Memorial Sloan-Kettering bought a four-story building at 1133 York Avenue for $42 million.
The non-profits are able to acquire development sites or projects at a discount in a situation that they normally could not afford [but with the] caveat that they have suffered tremendous diminution or [a] meltdown in their assets and portfolio.
Other than institutional users, who is looking to buy?
Long-term holders of land — patient money — now find themselves in a situation where they can take advantage of the depressed land values to expand their development sites along with the acquisition of the various legislative rights that would enable them to enhance the size and potential of their development site.
Despite the uncertain economy, are sites still being assembled in Manhattan?
There are probably over 100 sites that are in various stages [of assemblage], and we are working on 10 or 12 different development transactions. Actually there are probably a lot more; the question is how viable are these. Typically, many of our pre-development deals take over a decade [to complete]. [In] the recent deal we did with the [New York] College of Podiatric Medicine [Vornado’s Harlem site], initially I contacted them back in 1982 with a deal that closed in 2006.
How has the economic downturn impacted the value of air rights, which generally sell for about half the value of the land?
These values pretty much follow the decline in value [of land prices], which may have been as much as 50 percent.
Other than economic uncertainty, what other factors are impacting the sale of development sites?
You can buy the finished product cheaper than building the new product. A new office building will cost you $1,000 per foot or $900 per foot.
What has happened in value to 421a negotiable certificates, which are produced by affordable housing developers who can then sell them to market-rate developers, who in turn receive a tax benefit?
At one time the 421a [benefits] which sold for $12,000 for a certificate were up to $40,000 and right now I think they are going back to $12,000 to $14,000.
Short of actually buying air rights or land, what strategies can be employed to control property?
In negotiations to acquire the ancillary development rights, the vendors we are in contact [with] have to realize and recognize the fact that the deal is subject to a ULURP [or Uniform Land Use Review Procedure] process, which is two years out. So you take advantage [of the fact] that you are able to basically tie up the land or the legislative rights without having to put up any great amount of money.