The City Planning Commission on Wednesday unanimously approved selling development rights to property owners in West Chelsea for $625 per square foot, the proceeds of which will go toward building affordable housing in the area.
The vote gives developers in the West Chelsea Special District another option to build out their lots, following the downzoning of the neighborhood in 2005. The pricing is higher than the $500 per square foot the commission initially considered. Community Board 4 and others argued it was too low for a district where air rights have recently sold for $800 per square foot.
The disagreement over air rights pricing — as was the case for disputes over the landmarked air rights in Midtown East — boils down to the methodologies for calculating going rates in the district.
An analysis by City Center Real Estate shows that seven of the sales included in the city’s calculations ranged from $100 to $230 per square foot, even though a majority of the 22 sales clocked in at more than $400 per square foot. City Center Real Estate’s Brian Strout noted that all of these lower sales were assignments, which essentially means that what shows up in public records isn’t always a true reflection of the sales price. The contract signed by the initial buyer of the air rights — which wasn’t recorded in public records because the deal never technically closed — was assigned to a third party at a later date (and often at a different price). What gets recorded is the price the initial buyer agreed to pay the developer, not the price that was actually paid.
Michael Smith, a partner at Herrick Feinstein, noted that the long contract periods for these deals — which can range from a few months to years — allows buyers to change their minds. This can be a result of prices rising during a lengthy closing or option period. In some cases, the initial buyer purchased more rights than they needed (either intentionally or unintentionally) and decided to sell off the rest (sometimes at a higher price).
Assignments allow developers to seamlessly shift rights from one site to another. They also, as seen here, can skew the public’s perception of the value of air rights. City Center’s report shows that excluding those seven assignments would result in an average price of $720 per square foot.
“In the scheme of the city’s budget, it’s not going to be a huge impact,” Strout said. “But if you have the opportunity to make another $95 per square foot, that does generate more money for affordable housing.”
The city calculated the new price through a weighted average, in which the latest air rights sales in the area were more heavily counted. Community Board 4 recommended that the rights be priced at $800 per square foot.
Most of the air rights — at least 90 percent — owned by private property owners in the area have been sold (it’s been estimated that 90,000 square feet remain.) When the city rezoned West Chelsea, officials stipulated that once 90 percent of air rights available along a 100-foot-long area of the High Line were sold, the city would start selling its own development rights to fund affordable housing.