The Real Deal New York

Air rights out of nowhere: City could offer density bonuses in West Chelsea

Property owners would contribute to affordable housing fund
By Kathryn Brenzel | August 09, 2017 01:30PM

High Line

Developers have long griped about the lack of available air rights in West Chelsea. And now, with most of the available air rights sold off, the city could step in and start, essentially, selling their own.

As part of the 2005 rezoning of West Chelsea, the city stipulated that once 90 percent of air rights were sold or otherwise used in the district, developers could potentially increase allowed floor area in exchange for contributions to an affordable housing fund. That threshold has likely been met, and the city is expected to consider these extra development rights in the coming months, sources told The Real Deal.

But a lot has to be sorted out before this option is made available. City Planning Chair Marisa Lago would need to officially certify that 90 percent of the air rights in the district had changed hands. City Planning would also determine how much a property owner would need to pay per square foot to the affordable housing fund, which would be overseen by the Housing Preservation and Development.

Representatives for both City Planning and HPD declined to comment.

The city downzoned the West Chelsea Special District in 2005, making it so that the allowed floor area ratio (FAR) — the ratio of usable floor area to lot size — in most of the district was an FAR of 5. The rezoning also, however, created a few options for developers to bump their FAR back up — to 7.5 in some areas of the district, and even higher in others.

Property owners could buy air rights from the High Line Transfer Corridor, a 100-foot long area along the High Line between West 19th and 30th streets. Or they could do so through a combination of those air rights and inclusionary housing density bonuses to get up to the maximum FAR.

Still, even with those options, upping density has proven difficult for some developers in recent years, noted Brian Strout, of City Center Real Estate. Strout said that most of the air rights in the transfer corridor have been sold or have been warehoused by property owners. (A report by City Planning in 2015 showed that 403,983 square feet of air rights had been sold between 2006 and 2015. At the time of the report, another 10 deals were underway.)

“Those with High Line Corridor (air rights) to sell were hoping the 90 percent rule was not close to being reached,” he said. “For buyers, however, the 90 percent rule certification by City Planning couldn’t come soon enough.”

Paul Selver, land use attorney at Kramer Levin, said some property owners have likely held onto their air rights in hopes that prices in the district would continue to climb. Development along and near the High Line has exploded over the last few years. In November, developer Six Sigma purchased 4,900 square feet of air rights for $3.9 million — about, $800 per square foot.

The pricing of the city density bonuses could also have an impact on whether developers decide to create onsite or offsite affordable housing through the inclusionary housing program.

Cushman & Wakefield’s Brock Emmetsberger said that a slowdown in development site transactions, however, may not bode well for the air rights market in West Chelsea. Since 2016, only one development site sale has closed, he said.

“The pricing of the air rights is still very much a product of demand for development sites in the district,” Emmetsberger said. “Sales have slowed.”